<PAGE>
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
James W. Grisham
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
- --------------------------------------------------------------------------------
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
- --------------------------------------------------------------------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the nine months ended September 30, 1997, the Morgan Stanley Global
Opportunity Bond Fund, Inc. (the "Fund") had a total return, based on net
asset value per share, of 20.93% compared to 14.35% for the Fund's benchmark
(described below). For the one year ended September 30, 1997, the Fund had a
total return, based on net asset value per share, of 28.54% compared with
20.93% for the benchmark. For the period since the Fund's commencement of
operations on May 27, 1994 through September 30, 1997, the Fund's total
return, based on net asset value per share, was 79.04% compared with 74.61%
for the Index. The Fund uses as its benchmark, for purpose of comparing its
performance, a composite comprised of 50% of the J.P. Morgan Emerging Markets
Bond Plus Index and 50% of the CS First Boston High Yield Index. However, the
Fund's weightings in these asset classes is not restricted and will, under
normal circumstances, fluctuate depending on market conditions. At September
30, 1997 the Fund's net assets were comprised of 63.5% of emerging markets
debt securities and 32.5% U.S. high yield securities.
On September 30, 1997, the closing price of the Fund's shares on the New York
Stock Exchange was $15 5/8, representing a 6.2% discount to the Fund's net
asset value per share.
Emerging market debt was propelled higher by the continuation of the rally in
U.S. bond prices and subsequent 35 basis point decline in U.S. Treasury
yields during the quarter. The decline in U.S. rates was fueled by a lack of
inflationary pressures and by a Federal Reserve which kept policy unchanged
during the quarter. Spreads on emerging market debt continued to narrow
through the summer months as has been typical in rallying U.S. bond market
environments. The average spread on a typical emerging market bond moved from
400 over U.S. Treasuries, to 350 over U.S. Treasuries while the yield on the
long bond declined form 6.78% to 6.40%.
We have maintained a somewhat cautious view on emerging market debt over the
last few months as it has been our belief that the recent strength in
emerging markets has been driven more by technical factors than by
fundamental improvements in sovereign credit outlooks. Technical factors such
as the continuous flow of money into emerging market and high yield mutual
funds and Brady bond buybacks by most of the larger Latin countries were the
key drivers which caused spreads to narrow for emerging market bonds. This
occurred while fundamental credit factors remained steady for most of Latin
America and Eastern Europe but deteriorated in Southeast Asia.
During the quarter, Bulgaria, Ecuador and Russia were the performance
leaders, while Morocco, Panama and the Philippines lagged the rest of the
market. The Fund's overweight positions in Bulgaria and Russia were largely
responsible for the portfolio's outperformance of 0.63% during the quarter.
The Fund had almost no exposure to any of the countries in Southeast Asia and
was able to avoid the price declines suffered by assets in that region.
We begin the fourth quarter with spreads at historically narrow levels and
interest rate hikes in the U.S. and Europe seemingly possible before year
end. Cautions seems warranted because investor appetite for risk tends to
decrease during the fourth quarter and liquidity in all markets declines
toward year end. We are also mindful of the near term outlook for the
Southeast Asian region and continue to watch for potential contagion effects
on emerging market debt. While we are not expecting any large or widespread
correction, we do feel that a more conservative portfolio posture will serve
us well in the upcoming months.
The high-yield market continued its solid performance in the third quarter of
1997. The absence of Federal Reserve tightening, and favorable inflation
statistics resulted in ten year treasury rates declining nearly 40 basis
points in the quarter. The stock market also provided a sound backdrop to the
high-yield market as the S&P 500 rose about 7 1/2 percent over the quarter.
High-yield bond yield spreads over U.S. Treasuries continued to be at
historically narrow levels. These levels are supported by the solid U.S.
economy, strong demand among mutual fund investors and others for high-yield
bonds, and favorable merger and acquisition activity affecting high-yield
companies. The telecommunications sector has been especially active in the
merger and acquisition and IPO fronts. The third quarter was capped by the
proposed acquisition of both MCI Communications and Brooks Fiber by Worldcom.
These transactions follow Worldcom's acquisition of MFS Communications
completed earlier in the year. These and similar transactions are being
consummated through stock swaps, and thus the combined companies have not
increased debt levels. Credit quality of the acquired companies has improved
as a result of the mergers, favorably impacting prices on their high-yield
bonds. We believe the accelerating demand for telecommunications services
will continue to favorably impact companies who have sound business
strategies and attractive fiber-optic networks. We have been significantly
weighted in the sector, and increased our commitment in the third quarter.
2
<PAGE>
We continued to reduce our exposure to the cable television sector. In the
second quarter, Microsoft announced plans to make an investment in Comcast.
Telecommunications Inc., the leader in the industry, began to improve credit
quality by spinning off non-cable assets and entering into joint ventures to
realize efficiencies in parts of their cable system. Cable company stock
prices have soared this year indirectly helping bond prices and more directly
boosting returns on a TCI convertible bond investment we made earlier in the
year.
The high-yield portion of the portfolio continues to stress higher credit
ratings when compared to other high-yield managers, with an average credit
quality of BB. We believe that through active security selection we can
perform favorably without reaching for the higher current yields available in
lower quality securities.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Robert E. Angevine
Robert E. Angevine
PORTFOLIO MANAGER
/s/ Paul Ghaffari
Paul Ghaffari
PORTFOLIO MANAGER
October 1997
3
<PAGE>
MORGAN STANLEY GLOBAL OPPORTUNITY BOND FUND, INC.
INVESTMENT SUMMARY AS OF SEPTEMBER 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
------------------------- --------------------------- -------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO DATE 15.24% -- 20.93% -- 14.35% --
ONE YEAR 22.47 22.47% 28.54 28.54% 20.93 20.93%
SINCE INCEPTION* 67.92 16.74 79.04 19.00 74.61 18.13
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND PER SHARE INFORMATION:
[CHART]
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31: ENDED
1994* 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value Per Share. . . . . . . . . $ 12.25 $ 12.99 $ 14.86 $ 16.66
Market Value Per Share . . . . . . . . . . $ 12.50 $ 12.50 $ 14.63 $ 15.63
Premium/(Discount) . . . . . . . . . . . . 2.0% -3.8% -1.5% -6.2%
Income Dividends . . . . . . . . . . . . . $ 0.91 $ 1.59 $ 1.49 $ 1.02
Capital Gains Distributions . . . . . . . -- -- $ 0.50 $ 0.18
Fund Total Return (2). . . . . . . . . . . -6.42% 20.34% 31.45% 20.93%
Index Total Return (3) . . . . . . . . . . -0.46% 22.37% 25.36% 14.35%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) Prior to fiscal year 1997, the Fund used the J.P. Morgan Emerging Markets
Bond Index for performance purposes. Beginning in 1997, the Fund is using
a Global Opportunity Blended Composite comprised of 50% of the J.P. Morgan
Emerging Markets Bond Plus Index and 50% of the CS First Boston High Yield
Index for the purpose of performance comparisons. This composite better
represents the investment strategy of the Fund. However, the Fund's
weighting in these asset classes is not restricted and will, under normal
circumstances, fluctuate depending on market conditions. As of September
30, 1997, the Fund's net assets were comprised of 63.5% emerging markets
debt securities, and 32.5% U.S. high yield securities.
* The Fund commenced operations on May 27, 1994.
4
<PAGE>
MORGAN STANLEY GLOBAL OPPORTUNITY BOND FUND, INC.
PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
[CHART]
Debt Securities (90.5%)
Equity Securities (2.3%)
Short-Term Investments (7.2%)
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
Other (6.2%)
Turkey (2.1%)
Ecuador (2.2%)
Jamaica (2.9%)
Bulgaria (3.2%)
Argentina (6.6%)
Venezuela (7.2%)
Mexico (9.8%)
Russia (9.8%)
United States (36.8%)
Brazil (13.2%)
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
PERCENT OF
NET ASSETS
----------
1. Federative Republic of Brazil 'C' Bond PIK
8.00%, 4/15/14 6.5%
2. Russia Principal Note, Zero Coupon,
12/31/99 4.2
3. Republic of Venezuela Debt Conversion
Bond 9.25%, 9/15/27 3.8
4. Salomon Brothers Federative Republic of Brazil
Credit Linked Enhanced Note 9.00%, 1/15/99 3.6
5. Republic of Venezuela Debt Conversion Bond
'DL' 6.75%, 12/18/07 3.5
6. CIA International Telecom 144A 10.375%,
8/1/04 3.0
7. Republic of Argentina 6.688%, 3/31/05 2.9
8. United Mexican States 11.50%, 5/15/26 2.2
9. Turkish Treasury Bill, Zero Coupon,
8/12/98 2.1
10. United Mexican States Discount Bond
'D' 6.813%, 12/13/19 2.1
----
33.9%
----
----
* Excludes short-term investments.
5
<PAGE>
INVESTMENTS (UNAUDITED)
SEPTEMBER 30, 1997
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
DEBT INSTRUMENTS (90.0%)
- --------------------------------------------------------------------------------
ALGERIA (0.9%)
LOAN AGREEMENTS
+Algeria Reprofiled Loan Agreement Tranche A
7.125%, 12/31/00 U.S.$ 700 U.S.$ 630
------------
- --------------------------------------------------------------------------------
ARGENTINA (6.6%)
BONDS
CIA International Telecom 144A
10.375%, 8/1/04 ARP 2,000 2,041
+Republic of Argentina 6.688%,
3/31/05 U.S.$ 2,112 2,011
Republic of Argentina 144A
11.75%, 2/12/07 ARP 450 509
------------
4,561
------------
- --------------------------------------------------------------------------------
BRAZIL (9.6%)
BONDS
Federative Republic of Brazil 'C'
Bond PIK 8.00%, 4/15/14 U.S.$ 5,245 4,466
+Federative Republic of Brazil
'EI-L' Bond 6.875%, 4/15/06 792 743
Federative Republic of Brazil
Global Bond 10.125%, 5/15/27 1,360 1,363
Globopar 10.50%, 12/20/06 80 84
------------
6,656
------------
- --------------------------------------------------------------------------------
BULGARIA (3.2%)
BONDS
+Republic of Bulgaria Discount Bond 'A' Euro
6.688%, 7/28/24 500 416
Republic of Bulgaria Front Loaded Interest
Reduction Bond 2.50%, 7/28/12 1,050 691
+Republic of Bulgaria Past Due
Interest Bond 6.688%, 7/28/11 1,315 1,062
------------
2,169
------------
- --------------------------------------------------------------------------------
COLOMBIA (0.6%)
BONDS
Occidente y Caribe 0.00%,
3/15/04 525 414
------------
- --------------------------------------------------------------------------------
ECUADOR (2.2%)
BONDS
Conecel 144A 14.00%, 5/1/02 500 540
+Republic of Ecuador Past Due
Interest Bond 6.688%, 2/27/15 1,290 939
------------
1,479
------------
- --------------------------------------------------------------------------------
IVORY COAST (1.8%)
LOAN AGREEMENTS
Republic of Ivory Coast Syndicated Loan DEM 1,105 300
Republic of Ivory Coast Syndicated Loan FRF 8,400 752
Republic of Ivory Coast Syndicated Loan U.S.$ 450 216
------------
1,268
------------
- --------------------------------------------------------------------------------
JAMAICA (2.9%)
BONDS
Government of Jamaica 9.625%,
7/2/02 1,000 1,014
Mechala Group Jamaica, Ltd. 'B'
12.75%, 12/30/99 1,000 1,010
------------
2,024
------------
- --------------------------------------------------------------------------------
MAURITIUS (0.6%)
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
Pindo Deli Finance Mauritius 144A 10.75%, 10/1/07 400 407
------------
- --------------------------------------------------------------------------------
MEXICO (9.8%)
BONDS
Bancomext Global Bond 7.25%,
2/2/04 470 448
Empresas ICA Sociedad Controladora 144A 11.875%,
5/30/01 1,000 1,120
National Financiera 17.00%,
2/26/99 ZAR 4,000 863
Petro Mexicanos 144A 9.50%,
9/15/27 U.S.$ 500 512
United Mexican States
11.50%, 5/15/26 1,270 1,546
0.00%, 6/30/03 4,962 --@
+United Mexican States Discount Bond 6.867%,
12/31/19 900 861
+United Mexican States Discount Bond 'D'
6.813%, 12/31/19 1,500 1,435
------------
6,785
------------
- --------------------------------------------------------------------------------
MOROCCO (2.0%)
LOAN AGREEMENTS
+Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' (Salomon Brothers,
Inc., J.P. Morgan) 6.813%, 1/1/09 1,450 1,361
------------
- --------------------------------------------------------------------------------
NETHERLANDS (1.5%)
BONDS
Unexim International Finance 144A 9.875%, 8/1/00 1,000 1,013
------------
- --------------------------------------------------------------------------------
6
<PAGE>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
PERU (1.2%)
BONDS
Republic of Peru Front Loaded
Interest Reduction Bond 13.25%, 3/7/17
U.S.$ 1,350 U.S.$ 832
-------------
- -------------------------------------------------------------------------------
RUSSIA (9.8%)
LOAN AGREEMENTS (3.7%)
Bank for Foreign Economic
Affairs (Participation: Chase
Securities, Inc.) 600 622
International Bank for
Economic Cooperation Loan Agreement 1,700 1,221
International Bank for Economic
Cooperation Loan Agreement DEM 1,750 701
-------------
2,544
-------------
NOTES (6.1%)
Russia Interest Arrears Note U.S.$ 1,625 1,342
Russia Principal Note,
Zero Coupon, 12/31/99 3,900 2,908
-------------
4,250
-------------
6,794
-------------
- -------------------------------------------------------------------------------
UNITED STATES (30.1%)
ASSET - BACKED SECURITIES (2.2%)
Aircraft Lease Portfolio Securitization Ltd. 1996-1
P1D 12.75%, 6/15/06 374 404
Securitized Asset Sales, Inc. 1997-5
'A1' 7.72%, 6/15/05 275 275
DR Securitized Lease Trust
1993-K1 A1 6.66%, 8/15/10 160 146
1994-K1 A1 7.60%, 8/15/07 471 458
First Home Mortgage Acceptance Corp., 1996-B,
Class C 144A 7.929%, 11/1/18 249 223
-------------
1,506
-------------
BONDS (27.4%)
Advanced Micro Devices, Inc.
11.00%, 8/1/03 760 852
Ameriserve Food Co. 144A
10.125%, 7/15/07 85 88
Anthem Insurance 144A 9.00%,
4/1/27 375 404
Big Flower Press Holdings, Inc.
144A 8.875%, 7/1/07 275 274
Brooks Fiber Properties 0.00%,
3/1/06 700 562
CA FM Lease Trust 144A 8.50%,
7/15/17 246 261
Cablevision Systems Corp.
9.875%, 5/15/06 405 437
Cliffs Drilling Co. 144A 10.25%,
5/15/03 25 27
Comcast Cellular Corp. 144A
9.50%, 5/1/07 565 590
Courtyard By Marriott 'B'
10.75%, 2/1/08 300 325
Dial Call Communications 'B'
0.00%, 12/15/05 U.S.$ 165 U.S.$ 147
EES Coke Battery Co., Inc. 144A
9.382%, 4/15/07 100 105
Fleming Companies, Inc. 144A
10.50%, 12/1/04 110 115
10.625%, 7/31/07 70 74
Fox/Liberty Networks LLC 144A
0.00%, 8/15/07 75 48
8.875%, 8/15/07 80 81
Grand Casinos 10.125%, 12/1/03 400 425
Hermes Europe Railtel BV 144A
11.50%, 8/15/07 40 43
HMC Acquisition Properties
9.00%, 12/15/07 350 360
Horseshoe Gaming L.L.C. 144A
9.375%, 6/15/07 250 258
Host Marriott Travel 9.50%,
5/15/05 450 474
+Huntsman Corp. 144A 9.094%,
7/1/07 250 260
Integrated Health Services 144A
9.50%, 9/15/07 815 839
Intermedia Communications 144A
0.00%, 7/15/07 395 275
Iridium LLC/Capital Corp. 144A
13.00%, 7/15/05 90 94
ISP Holdings, Inc. 'B' 9.00%,
10/15/03 395 413
IXC Communications, Inc.
12.50%, 10/1/05 175 202
Jet Equipment Trust 'C1' 144A
11.79%, 6/15/13 175 229
KMart Corp. 7.75%, 10/1/12 125 117
Midland Cogeneration Ventures
'C-91' 10.33%, 7/23/02 22 24
Midland Funding Corp. I 'C-94'
10.33%, 7/23/02 172 184
Midland Funding Corp. II 'A'
11.75%, 7/23/05 80 94
Navistar Financial Corp. 'B'
9.00%, 6/1/02 65 67
Nextel Communications 0.00%,
8/15/04 810 702
Norcal Waste Systems Inc.
13.00%, 11/15/05 500 575
Nuevo Energy Co. 9.50%,
4/15/06 240 256
Outdoor Systems Inc. 144A
8.875%, 6/15/07 810 826
Paramount Communications
8.25%, 8/1/22 195 193
Qwest Communications
International 144A 10.875%,
4/1/07 135 153
Revlon Worldwide 'B' 0.00%,
3/15/01 275 200
7
<PAGE>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
Riggs Capital Trust II 144A
8.875%, 3/15/27 U.S.$ 140 U.S.$ 148
RJR Nabisco Inc. 8.75%, 4/15/04 265 280
Rogers Cablesystems 'B' 10.00%,
3/15/05 425 466
Rogers Cantel Inc. 144A 8.30%,
10/1/07 555 556
Rogers Communications, Inc.
9.125%, 1/15/06 90 92
Globalstar LP 144A 11.375%,
2/15/04 230 240
SD Warren Co. 'B' 12.00%,
12/15/04 215 243
Sinclair Broadcast Group 144A
9.00%, 7/15/07 475 473
Snyder Oil Corp. 8.75%, 6/15/07 175 175
Southland Corp. 5.00%, 12/15/03 1,265 1,091
Station Casinos, Inc. 144A
9.75%, 4/15/07 270 269
TCI Satellite Entertainment 144A
0.00%, 2/15/07 615 401
Tele-Communications, Inc.
9.25%, 1/15/23 260 280
Teleport Communications
0.00%, 7/1/07 555 434
Tenet Healthcare Corp. 8.625%,
1/15/07 805 834
Transamerican Energy 144A
0.00%, 6/15/02 100 79
Vencor Inc. 144A 8.625%,
7/15/07 700 710
Viacom, Inc. 8.00%, 7/7/06 390 389
Western Financial Bank 8.875%,
8/1/07 150 150
-------------
18,963
-------------
COLLATERALIZED MORTGAGE OBLIGATION (0.5%)
Long Beach Auto 1997-1, 'B' 144A
14.22%, 10/26/03 350 352
-------------
20,821
-------------
- -------------------------------------------------------------------------------
VENEZUELA (7.2%)
BONDS
Republic of Venezuela Debt Conversion Bond
9.25%, 9/15/27 2,733 2,606
+Republic of Venezuela Debt Conversion
Bond 'DL' 6.75%, 12/18/07 2,500 2,387
-------------
4,993
-------------
- -------------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$59,367) 62,207
-------------
- -------------------------------------------------------------------------------
STRUCTURED INVESTMENTS (3.6%)
- --------------------------------------------------------------------------------
BRAZIL
Salomon Brothers Federative Republic
of Brazil Credit Linked Enhanced
Note 9.00%, 1/15/99
(Cost U.S.$2,500) U.S.$ 2,500 U.S.$ 2,496
-------------
- -------------------------------------------------------------------------------
NO. OF
WARRANTS
- -------------------------------------------------------------------------------
WARRANTS (0.1%)
- -------------------------------------------------------------------------------
COLOMBIA (0.0%)
Occidente y Caribe 144A,
expiring 3/15/04 2,100 --@
- -------------------------------------------------------------------------------
UNITED STATES (0.1%)
Globalstar Telecom 144A, expiring 2/15/04 230 28
Iridium World Communications, Inc.,
expiring 7/15/05 90 13
-------------
41
-------------
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost U.S.$0) 41
-------------
- -------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCK (2.3%)
United States
IXC Communications, Inc. 144A PIK 12.50% 125 145
Sinclair Capital 144A 11.625% 2,050 222
TCI Communications, Inc. 5.00% (Convertible) 770 97
Time Warner, Inc. Series 'M' 10.25% 1,000 1,145
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost U.S.$1,440) 1,609
-------------
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (7.4%)
- --------------------------------------------------------------------------------
TURKEY (2.1%)
BILLS
Turkey Treasury Bill, Zero Coupon,
8/12/98 TRL 517,811,000 1,446
-------------
- --------------------------------------------------------------------------------
UNITED KINGDOM (1.0%)
NOTES
ING Bank 144A, Zero Coupon, 8/14/98 U.S.$ 700 691
-------------
- -------------------------------------------------------------------------------
8
<PAGE>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
UNITED STATES (4.3%)
REPURCHASE AGREEMENT
Chase Securities, Inc., 5.75%, dated
9/30/97, due 10/1/97, to be repurchased
at U.S.$3,000, collateralized by United
States Treasury Notes, 5.875%, due
11/15/05, valued at U.S. $3,079 U.S.$ 3,000 U.S.$ 3,000
-------------
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S.$5,182) 5,137
-------------
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.4%)
(Cost U.S.$68,489) 71,490
-------------
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.4%)
Other Assets 21,940
Liabilities (24,305) (2,365)
----------- --------------
NET ASSETS (100%)
Applicable to 4,149,339 issued and
outstanding U.S.$0.01 par value
shares (100,000,000 shares authorized) U.S.$ 69,125
-------------
-------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 16.66
-------------
-------------
- --------------------------------------------------------------------------------
@ - Value is less than U.S.$500.
+ - Variable/floating rate security - rate disclosed is as of September 30,
1997.
PIK- Payment-in-Kind. Income may be paid in additional securities or cash at the
discretion of the issuer.
9
